Wednesday, May 07, 2014

Three more ways to look at cohort data

The first one shows the MRR development of several customer cohorts over the cohorts' lifetime:

Each of the green lines represents a customer cohort. The x-axis shows the "lifetime month", so the dot at the end of the line at the bottom right, for example, represents the MRR of the January 2013 customer cohort (all customers who converted in January 2013) in their 9th month after converting.

Here are some of the things that you can see in this chart:

The second chart is based on exactly the same data but shows MRR for calendar months as opposed to cohort lifetime months, and it uses a slightly different visualization:

The third chart shows cumulated revenues minus CACs for different customer cohorts, i.e. it shows how much revenues a customer cohort has generated less the costs that it took to acquire the cohort:

The purpose of this one is to show if you're getting better or worse with respect to one of the most important SaaS metrics: The CAC payback time, i.e. the time it takes until a customer becomes profitable. Note that for simplicity reasons the chart is based on revenues. If you use it in real life, it should be based on gross profits, i.e. revenues minus CoGS.

What you can see here is that the first cohorts cross the x-axis (a.k.a. become profitable) around the 6th lifetime month, whereas newer cohorts are crossing or can be expected to cross the x-axis further to the left, i.e. become profitable faster.

Chris Janz - your excel files make my life much easier because of at least two reasons:1) it opens up new ways to look at the same data 2) saves me a LOT of time since I do not need to reconstruct the data myself

This is very helpful. I can see where the 10mth period show here would be good for a startup, but has anyone done this for greater than that time period. I'd like to throw data at this model for a previous 24mths to look at seasonality from previous years. I don't want to recreate a wheel if someone already has it.